The Wal-Mart Effect

By Greg Buzek | July 01, 2006

People have a choice in restaurants just like they have in retailers. Even in a world that's increasingly moving to a value-based model, there are plenty of choice out there: there is the low price value of the Wal-Mart world and then there is the higher priced experience. With a clear delineation between the two models, anybody in the middle tends to get squeezed. How much pressure does Wal-Mart exert? In 2004 Wal-Mart represented 2.3 percent of the U.S. GDP. In October 2005 alone the company generated $23 billion. To put it in perspective, that was $4 billion more than McDonald's made for the entire year.

Wal-Mart has 140 million transactions per week worldwide. That's about 5.5 billion rows a night being added to its data warehouse, which is now over a petabyte (One quadrillion bytes) in size. Now, the first thing many of you are saying is, "We're restaurants--We don't have to compete with Wal-Mart." Well, you do. Wal-Mart controls 18 percent of every food dollar in the United States. Retail Forward says by 2007, 35 percent of all groceries will be bought at a Wal-Mart. In 2000 that figure was about 2 percent.

Earlier this year Wal-Mart hired Bill Simon, who was the senior vice president. of global business development for Brinker. What would happen if Wal-Mart went into the restaurant business? What would happen to margins? What would happen to the quality of service? What would happen to the kind of benefits that you'd be able to offer? That's something you need to think about because the world is changing very, very fast. So how do you compete with Wal-Mart? The best way is by knowing what you want to be when you grow up. Secondly, restaurants need to know what the top 10 to 20 percent of customers are going to buy, when they buy, where they buy it, and being prepared to respond to that. Mine the data that you already have.

Stop treating your worst customers the best. At grocery stores the person buying three to four items gets an express lane, while the person buying groceries for the entire week has to stand in line. It doesn't make sense. How do you create an environment where your best customers get treated the best? This requires IT. In the hospitality industry, point of sale is number one. There's a big drive right now to get to a common POS platform, and to standardize on PC-based systems in the stores. New open POS systems are a top priority to get clean data to the back office. Many major brands are working with franchisees to figure out how to get to a common POS platform. Do you mandate or simply recommend the POS? Do you go to a common software platform and let them choose the hardware. These are key questions today.

Focus on transaction speed in your IT investment. Workforce management is also a solid investment. Employee turnover is huge so anything you can do to optimize labor scheduling and make the employees happier is a good thing. These steps will go a long way to help restaurants compete in a changing world.

Greg Buzek is the founder and president of IHL Consulting Group. This column was adapted from an address at the MURTEC in March 2006.